Online food delivery services have been a major innovation in the fast food and takeaway food industry.
However, as third-party delivery services continue to grow, everyone—from the third-party operators, to the partner stores, to consumers—face risks.
IBISWorld explores the third-party delivery wave.
The dawn of third-party delivery operators was met with great enthusiasm by investors.
Menulog was acquired for $855 million by British delivery service Just Eat in May 2015.
The business model was simple. The company provided an online advertising and order platform for small stores that couldn’t afford one.
Menulog attracted consumers who were looking for somewhere they could compare multiple fast food options.
Stores and consumers flocked to the site, leading to very positive statements from Just Eat in March 2016 about the ability to get a positive return on its acquisition.
Then, in August 2016, Uber Eats launched in Melbourne and Sydney. By October, it spread to most areas of Australia.
IBISWorld senior industry analyst, Andrew Ledovskikh, said the difference in Uber Eats’ model was that it provided delivery.
“Menulog was limited by the fact it could only provide services to stores with existing delivery staff and services,” he said.
“By March 2018, Just Eat slashed the value of Menulog by 40 per cent. The company claimed this was a goodwill impairment to account for the cost of Menulog launching its own delivery service, rather than pressure from Uber Eats,” said Ledovskikh.
Concerns over remuneration and conditions for third-party delivery drivers has been strong over the past five years.
“This contractor status is vital to third-party operators, as it keeps costs down. It means these companies do not need to provide award wages, superannuation or benefits such as long service leave. Without the ability to employ these drivers as contractors, many third-party delivery operators would see their business model become unprofitable,” said Ledovskikhn.
“This would see some operators collapse, while others would have to severely increase service charges to partner businesses,” he said.
IBISWorld forecasts the industry will face increased regulation on workers’ rights.
Many hospitality businesses jumped rapidly onto services liked Menulog and Uber Eats over the past five years, with Menulog having more than 10,000 partner stores in 2018.
IBISWorld explains the number is jumping every year.
But, while consumers are receiving the benefits of increased convenience through food-delivery services, they are increasingly paying higher prices for fast food and takeaway.
Additional delivery and the third-party commission fees built into the price of the food has meant strong growth in fast food prices paid by consumers, which in many cases is siphoned directly to third-party delivery operators.
“The pressure on third-party operators to ensure large investments pay off, and the possible increased costs to these operators if they lose regulatory battles surrounding contractor delivery drivers, will likely lead to consumers and small businesses facing higher charges over the next five years,” said Ledovskikh.
A February 2018 study by Finder.com.au, found that a third of all Australian adults living in capital cities were delivery-service users, and that their yearly average spend was already nearly $1,600.